tv Nightly Business Report PBS February 21, 2011 7:00pm-7:30pm EST
>> susie: this man is a legend in commercial real estate. his name is milton cooper. you may not know him, but his company is the biggest owner of strip shopping centers in the world. we'll see how he revolutionized commercial real estate financing, letting all investors buy a slab of rental property. "nightly business report" presents: "innovators in business," featuring milton cooper, king of the reit. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> susie: hello, everyone, and welcome to this special edition of "nightly business report:" "innovators in business." whether it's general electric or ibm, wall street is where businesses come to raise billions of dollars. but convincing investors to buy in isn't easy, especially if it's into commercial real estate. in 1991, milton cooper did just that when he came here to the new york stock exchange. by using securities called real estate investment trusts, or reits, he got the cash he needed. and he let the general public get in on the income generated by his growing portfolio of
strip shopping centers. his success helped bring about the modern reit industry, now valued at hundreds of billions of dollars. but at first, it was a tough sell. to find out why, let's turn back the clock. the 1990 recession hammered real estate hard. banks cut lending for all real estate projects. making things worse, the tax reform act of 1986 wiped out many breaks for investors in commercial real estate. they were tough times for milton cooper's shopping center company, kimco realty. deeply in debt, the firm badly needed to raise cash. >> real estate is a very capital intensive business. and we watched the manic- depressive mood swings of financial institutions-- they had money, they didn't have money. >> susie: developer sam zell ran
into the same problem. >> i remember, in the early days, calling institutions and their response was, "we don't invest in real estate. we don't buy real estate companies." >> susie: that's when cooper came up with a radical plan-- he decided to take kimco public with a stock offering. >> an i.p.o. gives you permanent, non-fickle capital. and it also creates an entity that could continue indefinitely, and motivate-- have shares that could be given away, stock options, motivate people. those were the principal advantages. >> susie: so, was it your idea? >> going public was not new-- there was public companies. what was new-- it was very difficult for real estate companies to become public. because real estate was such a dirty word, and it was held in
such low esteem by the investing public. >> susie: to change that image, cooper had another brainstorm-- why not offer kimco stock as a real estate investment trust, or reit? reits weren't a new investment-- they had been authorized by congress 30 years before to encourage public ownership of real estate. they were like other stocks in most ways, but there was one big difference. a reit had to fork over at least 90% of its rents and other taxable income to shareholders as dividends. that meant big payouts for investors, and a lower tax bill for the company. cooper sensed that would be good for both kimco and investors. and steven wechsler of the national association of real estate investment trusts says he was right. >> real estate provides two important investment features. one is a current return based on the underlying rents, and the other is capital appreciation over time.
and what the reit format does-- and what milton paved the way in providing to investors in a stock market-- is the way to access high quality real estate with the professional management, and to do so with regular, dependable, income- based returns through dividends. >> susie: by november 1991, kimco was set up as a reit, and cooper turned to a group of investment banks to underwrite the deal. richard saltzman, then a merrill lynch executive, was in charge. he says, without cooper, the deal would never have happened. >> the concept existed, but it was really untested. and milton became the evangelist, if you will, and the spokesperson for this being the new paradigm, the new model, and arguably a better mousetrap for investors than how, historically, they had invested in real estate.
>> susie: it took two weeks, but the kimco stock offering sold out, raising $120 million. a short time later, kimco reported better than expected earnings, and its stock price took off. >> what we did-- our projections were very conservative. and there were articles that kimco's mantra was "under- promise and over-perform," because the earnings that were projected in the prospectus were less than the actual results. >> susie: and author ralph block says under-promising was a smart move. >> he didn't want to be a cheerleader for his company, and so, he would try to be realistic. but he knew that, based on the strength of his organization, they were likely to outperform what everyone expected. >> susie: within two years, kimco's success set off a stampede of other reet i.p.o.s. and institutional money poured into the securities. in 20 years, the industry
ballooned from $13 billion to nearly half a trillion dollars. the kimco i.p.o. marked the start of the modern reit era, letting everyone get into real estate. >> what the real estate investment trust does for the shareholder, it enables them to own a portion of a large portfolio that they couldn't do on their own. you can imagine what it would take for any individual to own interest in shopping centers. they would have to have lawyers, title companies, bankers. here, they have an interest in real estate that they can acquire, that's diverse, and if they want to sell it, it gets sold in 15 minutes. you, in effect, create a liquid market for real estate.
>> susie: milton cooper was born in 1929, right at the start of the great depression. he grew up on new york's lower east side, a neighborhood of working-class jewish immigrants. the son of a plumber, his family struggled to get by. >> oddly enough, it was a nice time. everybody was poor. and you didn't have television, so you didn't see "dallas" or "the rich and famous." and we really thought everyone was poor. and it was a wonderful time. it was community. you had hope in your heart, because it couldn't get worse. >> susie: it was difficult, economically. >> yes. >> susie: and what was your takeaway from all of that? >> my takeaway was that i never really felt successful financially. you always feel that... those early years form an imprint, and you really feel... and you also
can identify with people who struggle. it was a tough time. >> susie: cooper was the first in his family to go to college. he went on to brooklyn law school, and after graduation, worked at a firm with many real estate clients. you started out as a lawyer. and then, you got into real estate. what happened? >> what i liked about the business is you could earn money while you sleep. when you practice law, you had to have clients. you had to really be sure you didn't miss something in the contract, et cetera. real estate, once you're done, it works for you. >> susie: you started kimco with martin kimmel. what was he like? >> a very fine person. he had an entrepreneurial flair about him. he had a very good antenna with sizing up people. and because he was a bachelor and had time to entertain and
really be with brokers, retailers, et cetera, he was very effective. we were partners for over 50 years, and we never had an argument. we may have disagreed, but it was never an argument. >> susie: in 1958, they built their first strip center together in florida. it was coral way plaza, a property kimco still owns today. >> it was a property in miami, and the tenant was a private company based in new england called zayre. and it was their first discount store in florida. the total cost of construction was $7 a foot. and i made a lot of mistakes in developing it. in spite of those mistakes, it turned out to be a very good deal. >> susie: now, you went on to build and develop many, many strip centers all over the country. what attracted you to the
business? >> the strip shopping center has a parking lot. it has to be four-to-one parking, so the land component is a very large proportion of the total value. the buildings are simple one- story buildings, not very expensive. and over time, that has to increase in value, and your tenants rents are land banking for you. >> susie: but cooper stayed away from building shopping malls. early on, he felt department stores would lose market share, and he thinks he made a wise decision. >> initially, the department store was the place where everyone shopped. you could buy furs, books, toys, electronics. and with time, we had the advent of the category killers. so the books became barnes and noble, electronics became the best buys and the others. today, they really specialize in apparel and cosmetics.
but by and large, they have a shrinking share of market. >> susie: but cooper's decisions haven't always been wise. some tenants have gone bankrupt. k-mart was one of kimco's biggest when if filed for chapter 11 in 2002. cooper was out a big chunk of change, but he says kimco makes its money from land, brick and mortar, not from cash registers. >> in the real estate business, you will find always will have credit and turnover issues. but by and large, over time, tenants come, rents move up historically with inflation, and the real estate business is a much better business, from our point of view, than the retail business. >> susie: to see cooper's business up close, he took me to manetto hill plaza, a typical kimco property. it's a shopping center in plainview, new york. >> what we like to see is stores that will serve the community, the demographics, the
neighborhood. and if you notice the stores, you'll notice there's a pizza place, there's a hair salon, there's a card shop. >> susie: so they're kind of some mom and pop shops; they're not necessarily glamorous stores. >> no, this is not an area that we call the tiffanys or glamour. >> susie: so here we have fairway as the big anchor to the strip center. how do you pick the winners? >> well, you have to find that tenant that will serve the needs of the neighbors, the community, et cetera, and fairway just fits like a glove. they're perfect. and the customers love it. you'll notice there's not a single parking slot. and if you go in the store, you'll see the traffic, the prices. it fits. >> good afternoon, kimco realty. may i help you? >> susie: today, kimco is a far cry from the company that milton cooper and martin kimmel started
a half-century ago. it's now the largest owner of neighborhood shopping centers in the world. with over 900 in 42 states, you probably shop at them. kimco has also expanded outside the u.s., running strip centers in five other countries. >> we followed some of our tenants. and walmart is aggressively expanding in mexico. so is home depot, best buy. and we felt that we had properties in mexico, relationships in mexico. so, it was a natural consequence. similarly, we liked canada-- cap rates were higher than the united states and interest rates were lower. >> susie: and these days, kimco's activities aren't confined to shopping centers. that's the result of a ground- breaking law signed by president clinton in 1999, the reit modernization act. >> well, until the reit modernization act, there were
strictures on what a reit could do. it could not develop and sell, it had to limit itself to certain activities. but the reit modernization act provided that a reit could form a taxable subsidiary, and as long as it paid tax, as any other corporation in america, it could do-- with certain limitations-- any kind of business that other corporations could do. >> susie: so how did that change things at kimco? >> well, we are able, for example, to participate in buying retailers and liquidating real estate, liquidating the inventory. we did that first with montgomery ward. and it opened up those avenues. and also, the ability to develop shopping centers and sell them. >> susie: in late 2009, kimco handed over day-to-day
operations to david henry, kimco's chief investment officer. while cooper is kimco's executive chairman, henry is c.e.o. >> he has a wonderful sense of finance. he has a great integrity. people just warm up to dave. he has a fabulous way about him, and he's been a wonderful addition for us. >> he hasn't passed the torch 100%, which is... which is understandable. and he's still an executive chairman versus a non-executive chairman. there's a difference in that, so there's still an everyday working atmosphere here. and as i said, it's more of a partnership, in my mind. >> susie: henry came to kimco from g.e. capital, where he ran the real estate portfolio. for years, he and cooper worked together, and they decided to further diversify kimco by getting it into other types of real estate. to boost the company's bottom
line, they bought hotels, apartments, offices, and nursing homes. both henry and cooper now say the strategy of buying non- retail properties was wrong, and they've sold some of them. >> at the time, it was well received, and we produced earnings that were better than most, which allowed us to pay dividends, and then grow our dividends better than most. and many of these projects were successful projects, in and of themselves. but in terms of looking at our multiple, and what wall street and investors and shareholders wanted us to focus on, yes, we probably should have stuck to shopping centers only. >> the market likes simplicity, it hates complexity, and we were a little too complex with property types, different segments. so, now we're getting back to basics and being a pure shopping center company. >> susie: as for what the housing crash of 2009 will mean for kimco's business, cooper says there will be lingering
effects. >> it will take time for that housing surplus to be absorbed before there will be new development, and it means the development part of our business will be on hold. in order to develop a shopping center, you need new rooftops, you need new buildings. >> susie: so how do you see the future of real estate? >> i think real estate has a wonderful future, in that whatever our problems are in the united states, our population grows, you can't make more and more land. we have, i'm told, every day, there are 6,000 acres of land that gets absorbed in the united states. so over time, land values will go up, and owning land that tenants carry is a wonderful long range business.
>> susie: at age 81, milton cooper hasn't slowed down much. he starts his day with an early game of tennis. then, its off to kimco headquarters, where he still works closely with david henry and the kimco staff. >> he prides himself in working hard. he's always on, if you will. the emails will arrive at all hours of the day and night. the cell phone will ring constantly. in fact, milton is here on saturday mornings, when i'm not here. >> susie: he's actively involved in real estate deals, but believes in a balance of work, family and leisure. >> no one can be happy all the time. but to have a shot at happiness, a person has to be capable of three things-- capable of enjoying their work, capable of loving someone other than themselves, and capable of enjoying leisure.
>> susie: and it seems the longer people work with cooper, the greater their admiration. >> he's funny, and he wants what he wants. and you know, basically, if he says, you know, "no rush," that means you better get it done today. >> i don't think of him as a boss, i really don't. and i don't think most people here do. it's... it's a group effort, and he shows the way. no one works harder than he does. he expects the best from us, and he gets it. >> he's very confident in his decisions. he's very on the cutting edge with what's in the industry and what's in the world. he's an extremely well-read, intelligent man. so, he kind of takes everything that's a part of him, and brings it to the company and to the business community. >> he's a consensus manager. he likes to... he likes to develop a consensus. he likes things debated.
he values pushback, he values disagreement. he likes to thoroughly air out different opinions. he doesn't like to move or make snap judgments. he likes things to be carefully considered. so, it's been a wonderful experience working with milton and learning from him. >> susie: frank laurenso has been cooper's banker for nearly 40 years, and he says few people are more respected. >> besides saying that he is a wonderful individual, he is iconic in the real estate industry. that was reinforced when he went public in the early '90s, and it continues till this day. people will still come to milton for advice-- not just realtors, but our tenants. >> susie: but his biggest fan is the woman behind the man, cooper's wife of 61 years, shirley. >> i am very proud of him. he's... he's brilliant.
he's wonderful. and he deserves everything that he has, because he worked very, very hard. and i'm proud of him. >> susie: although, over the years, he rarely brought his work home, mrs. cooper says even the shopping center king sometimes gets stressed. that was particularly true during the i.p.o. period, which she remembers as a rough time. >> he's a big worrier. he worries a lot, he really does. sometimes, he shows it; sometimes, he doesn't, but he does worry. and i'm sure it was a hard time. he didn't know how it was going to come out. >> susie: and then there are cooper's four sons-- two are doctors, one works in hollywood in the film business, and only the youngest is in real estate. three of them sat down with me and talked about their father's best qualities. >> a brilliant businessman. >> decent. >> kindest. >> sweet. >> man of his word. >> funny.
>> kindest man you'd ever meet. >> funny, funny. he just knows when to interject humor. it's just... whether it's to break the ice or to just endear himself, or just make you feel more comfortable. >> he enjoys his work. he enjoys people. he enjoys his free time. so, he's really, you know, a complete man. >> and he taught us your word is your bond. david mentioned that, and really... he's lived up to that, and all of us have to. >> he's a numbers guy. it's just this crazy, uncanny ability to just... and you got to be careful, even when you're negotiating for your allowance. "it's cash flow, it's cash flow. so, what other revenue?" "revenue? i'm seven, dad. the allowance, that's my revenue." "all right, so..." ( laughter ) but in a nice way. >> susie: was he a role model for you, as a father, as a business man? >> i can answer that. i gave a speech at a big
birthday that he had, and i... growing up, i had two idols, and he was... he really was one of them, and i've said that since i was a kid. >> susie: who was the other one? >> willie mays. ( laughter ) >> susie: and what does milton cooper, himself, think is the key to his success? >> it... i hate to sound trite-- it's really the golden rule of treating everybody the way you'd want to be treated. and you do that, people will trust you. yoll feel good, they'll feel good. it creates a very good environment for growth. >> susie: after six decades in the real estate business, he's most proud of his role in sparking the modern reit boom. cooper says it all goes back to 1991, and his decision to go to wall street for capital. >> i'm proud of the i.p.o. i think we really began the democratization of the ownership of real estate.
i'm glad where it's taken us. i'm glad that it's resulted in a... helped to create a much larger market cap for reits. >> susie: investors are glad, too. he's made them a lot of money. if you bought kimco stock when it began trading here in 1991 and held it 20 years, you would have a total return of over 1,000%, almost triple that of the s&p 500. and it's not just kimco investors who are grateful for milton cooper and his innovations. for everyone from developers to bankers to retailers, he dramatically transformed the commercial real estate landscape. that's it for this special edition of "nightly business report." i'm susie gharib. thanks for watching. "nightly business report" is made possible by: